Bank competition, earnings management and profit persistence

HG Finance

Jiang, Yuxiang ; Liu, Hong

University:University of Glasgow

Department:Adam Smith Business School

关键词: Earnings management.;   

Others  :  http://theses.gla.ac.uk/38943/1/2018JiangPhD.pdf

来源: University of Glasgow

【 摘 要 】

This thesis examines the impact of competition and earnings management on bank earnings persistence by exploiting natural experiments (IBBEA and SOX). Chapter three examines how competition affects bank earnings persistence by exploiting a natural experiment following interstate banking deregulation that increased bank competition. We find that bank earnings adjustment speed (which equals one minus earnings persistence in partial adjustment model) increases after their states implement this deregulation. We find the impact from the competition on earnings persistence is solid and consistent using Lerner index as bank-level competition measure and a battery of placebo tests. Despite the negative impact of competition on profit persistence, we didn’t find any peculiar situation that alleviates or strengthen this tie(regarding profitability, Gaps). Chapter four examines the impact of earnings management on earnings persistence in US banking industry. Results show earnings management have a positive influence. In addition, statistics illustrate managers are more willing to keep a high persistence of profit when they are outperformed than the expected to return. However, when it comes to the different timing of outside market, the effect of earnings management on profit persistence might vary significantly. This connection is robust by using SOX as an exogenous shock on financial reporting quality of the largest banks. Chapter five analyze the economic significance between earnings management and competition on earnings persistence. We use a battery of tests to determine the most important factor to earnings persistence. We also introduce investment sentiment as an exogenous variation of market vitality to see how bank profit persistence changes. We find both competition and earnings management have a significant impact on profit persistence. We also discover that competition would increase earnings management. Then, if higher competition reduces earning persistence and increase earnings management. While we also observe that higher earnings management would increase earnings persistence. Therefore, we conclude that the effect of the competition on earnings persistence is not from earnings management. Furthermore, we find that competition impacts on earnings persistence is strong enough to overcome the marginal effect that boosted from earnings management due to high competition. We additionally found that earnings management is sensitive to investment sentiment.